[ANALYSIS] What Filipinos can learn from France’s yellow vest protests
The Paris protests should serve as an inspiration to us in the Philippines to resist the fuel tax increase and other regressive economic policies of the Duterte administration. The jumble of bad, go-stop-go decisions now make it likely that the government has unleashed an Argentina-type inflation that could make the inflation rate hit 8 to 10 per cent early next year.
Over the last few weeks, France has been in turmoil as demonstrators have burned cars, defaced monuments such as the Arc de Triomphe in Paris, and tied up traffic. Their beef: the decision of the government of Emmanuel Macron to increase taxes on fuel by 10% beginning next year.
Amazingly, the government has caved in and cancelled the planned increase, worried not only by the violence but also the fact that according to the polls, 7 out of 10 French people supported the so-called “Yellow Vests,” or gilets jaunes, owing to their trademark protest gear.
The deeper reasons
The "yellow vests" may have focused their ire on the fuel tax increase, but analysts say their anger is fueled by deeper feelings of outrage at the insensitive neoliberal policies of Macron.
Ever since he came into office a year and a half ago, local government subsidies for part-time jobs have been slashed, housing aid for the poor has been reduced, and retirees have seen cuts in their pension checks. On the other hand, Macron has rushed to the aid of the rich, repealing France’s wealth tax, which had applied only to those with over €1.3 million in assets.
As reporter Cole Stanger notes, “This is why the notion of justice fiscale, or ‘tax justice,’ figures so prominently among Yellow Vest sympathizers: Why should ordinary people, they ask, be forced to fork over another couple hundred euros each month while the super-rich are rewarded simply for being super-rich?”
The "yellow vests" have also called on Macron to resign, which some observers think is not a bad idea since 3-and-a-half more years of him and his policies might deliver France to the hands of the far right National Front headed by Marine Le Pen in the next presidential election in 2022.
What the Gilets Jaunes teach us
The Paris protests should serve as an inspiration to us in the Philippines to resist the foolish anti-people economic policies of the Duterte administration. The centerpiece of the controversial TRAIN law was a move to levy major increase excise taxes on petroleum products over three years to make up for a deep reduction in corporate taxes.
Willfully ignoring the fact that the tax would have inflationary effects in the Philippines’ oil-intensive economy, where almost all areas of economic activity are fueled by largely imported oil, Duterte’s economic managers managed to sucker the House and the Senate to back the plan.
Any student of Econ 101 could have told them that the hefty tax increase would serve as a signal to middlemen and retailers in our transport-intensive agriculture to raise prices and to raise them beyond reasonable calculations of profit to ensure that they would, in fact, turn a profit. And that once food prices rose, they would have a cascading effect on all other areas of economic activity.
Moreover, once unleashed, the inflation genie would be hard to rebottle, and indeed, inflation hit a nine-year high of 6.7% in September and October.
Economic managers vs Piñol
The runaway inflation of the past 5 months has triggered a bitter debate within the Cabinet, with the economic managers led by Finance Secretary Sonny Dominguez blaming Agriculture Secretary Manny Piñol for the food price increases, and Piñol shouting back that their fuel tax increase was the culprit.
According to one Cabinet secretary, the shouting match became so furious and loud that President Duterte had to place his hands on his ears.
Piñol appeared to have won the battle in mid-October, when the economic managers agreed to shelve the second round of excise tax increases that would have brought the total tax on diesel from P2.50 to P4.50 and gasoline from P7 to P9 in January 2019.
However, in a turnaround, apparently triggered by eight weeks of fuel price reductions at the pump, the economic managers went back on their commitment and have now convinced Duterte to implement the second round of excise tax increases next month. This came amid frantic efforts to convince the population that inflation had “cooled” to 6 per cent in November from a nine-year high of 6.7% in September and October.
Why we face runaway inflation
Now things are going to really get interesting.
Inflation is determined by expectations about the price of goods in the future. There is only one thing that is certain at the moment, and that is that the tax on a liter of diesel will rise to P4.50 next year and that on a liter of gas to P9. There is, however, great uncertainty over the rise in the price of oil, which has been extremely volatile, being dependent on a host of international factors, including the future of the murderous Saudi Crown Prince Muhammad bin Salman, who had the journalist Jamal Khashoggi killed.
Confronted with this stupefying uncertainty, middlemen and retailers will do what is “rational” (from their point of view) and that is, factor into the price of their goods a steadily increasing margin of profit that would guarantee their making a neat sum if oil prices rise instead of decline, in addition to factoring in the P4.50 diesel excise tax.
Once high inflation begins, as it has over the last few months, it is extraordinarily difficult to rein in, and the decision to go on with the excise tax increase will make it even more difficult. Businesses trying to keep up with inflationary pressures find themselves trapped in an unending cycle, like a dog going round and round trying to bite its tail.
The jumble of bad, go-stop-go decisions now make it likely that the government has unleashed an Argentina-type inflation that could make the inflation rate hit 8 to 10% early next year.
Willful ignorance and secure technocrats
The President, however, is not likely to intervene since he not only does not understand but refuses to understand plain economics.
Owing to his willful ignorance, his economic managers, in particular, Budget Secretary Ben Diokno, National Economic and Development Authority head Ernesto Pernia, and Finance Secretary Dominguez, not only can decree what they want, subject of course to formal ratification by a compliant Congress, but they enjoy, de facto, the greatest degree of job security among members of the Cabinet, with little countervailing force to their flawed thinking than the increasingly isolated Manny Piñol, who’s not exactly an economic wizard.
As in France, the excise tax increase seeks to put the burden of tax reform on the poor in order to benefit the rich; in this case, the strategic aim of TRAIN is to bring down the corporate income tax rate from 30% to 20%, as the World Bank, International Monetary Fund, and the foreign chambers of commerce have long demanded. TRAIN’s authors boast that under the new law, people earning P250,000 a year or below are exempted from paying income taxes.
This is now a silly boast since these same people are now effectively paying an “inflation tax” that is clawing back from their annual income much more than they would have paid in taxes owing to the fuel tax increase. TRAIN is part of a neoliberal program that continues to promote contractual labor, holds down wages despite inflationary pressures, prevents effective curbs on the mining industry, seeks to get rid of the nationalist provisions in the Constitution, and eliminates all import quotas. The regime has also turned a blind eye to the demands of farmers to undertake serious and comprehensive agrarian reform.
Taxing diesel and gas, it must be pointed out, is not always bad.It is fine if it is part of a comprehensive plan to move people to alternative energy sources, like solar and wind, to reduce carbon emissions to contain climate change.
But if the government has not made the necessary investments on an alternative energy infrastructure that will allow our people to switch to more benign energy sources with not too much hardship, excise taxes on fuel simply add to more misery, more poverty, more inequality for the vast majority. As of now, that alternative energy infrastructure is non-existent.
Many politicians are trying to ensure their reelection by sponsoring bills to halt the excise tax increase.
Senators who voted for TRAIN, like all the pro-Duterte majority, are now trying to latch on to the “stop the excise tax increase” wave. Voters should give these people what they deserve: to be voted out of office.
As in France, only popular protest in the streets will be able to stop the government’s stubbornly stupid plan. The question is, are our people willing to go out to the streets and mess things up, like France "yellow vests" did? – Rappler.com
Walden Bello is author of the forthcoming book Paper Dragons: Why Financial Crashes Happen and Why China May be Next (London: Zed, 2019) and a former member of the Philippines’ House of Representatives. Ia Maranon is a member of the research team of the organization Laban ng Masa.